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Topic: Thoughts on Minimum Wage? (Read 23026 times)

Most of us are not dependent on minimum wage in MMM, but I was curious to see if anyone in the community had any thoughts on the minimum wage increase pros and cons that has been in the news lately. I feel that mustachians tend to feel a social responsibility that factors into our opinions, which I like, but at the same time many of us are not in the demographic where minimum wage positions are our only job prospects, making us potentially out of touch.

It needs to be raised but to nowhere near the $15 range that is commonly pushed. It just isn't possible to raise the minimum to a "living" wage. Whatever it is raised to, hopefully they index it to inflation so the debate doesn't go on and on.

The real issue is that people get stuck in low wage jobs without enough savings buffer to get training to move up. This is a personal and societal issue that needs addressed but paying people significantly more money to work as a cashier at Chipotle isn't the answer.

I've thought a bit on the topic but I'm not sure there are easy answers. It feels to me like there's a short term period where things are better, followed by an increased drive to automate minimum wage jobs out of existence. I think we need something different.

It's clear that plenty of large companies could pay their employees a better wage. McDonalds employs 375,000. For the sake of argument, let's assume they're all full time workers making minimum wage. They aren't, but that's the worst possible case in this scenario. For a couple days yet, that's $8.75 at the federal level. Some states are higher, but again, let's go worst case. At full time, they'd earn roughly 150% of the poverty line for a household of one. Let's say we're happy with a wage of 200% of the poverty level full time, about $24k. That would require a bump to $11.60 per hour. That's a raise of $2.85. Under our assumptions that all employees are full time and minimum wage, that's a cost of almost $6k per employee, or $2.2B total.

Thing is, McDonalds made about $12.5k net profit per employee in 2016, about $4.7B total. Worst case is profits aren't quite halved. And since many of those workers are part time and they aren't all sitting exactly at the minimum wage right now, the real impact would be less than that. That's a bunch of pissed off investors, but at the end of the day it's also more money in the hands of consumers, more tax revenue, and fewer subsidies to give out. Large companies have some wiggle room to pay more and it would be better for everybody that isn't a shareholder.

But large public companies in this country are trying to maximize profit for their shareholders. For the large companies that would see significant impacts from higher minimum wages, that's a target for them to reduce. For companies like McDonalds, that may mean ordering from kiosks or an app instead of from a worker at the counter. CaliBurger is investing in a robot to flip burgers. People will be automated out of jobs when they get expensive.

So maybe increasing the minimum wage means that the per employee wage goes up but the number of employees goes down, so profits remain stable. Is that helpful? It seems to make some people slightly better off while others lose entirely. There's not likely to ever be a law stating you can't automate work, so there's no protection that way.

But does that future come eventually anyway, even without raising the minimum wage? At some point it is simply cheaper to have a couple employees to maintain some computers than to worry about a larger staff. Raising the minimum wage isn't going to prevent that. Hence, something else needs to happen, possibly in addition rising wages.

I guess, to put it succinctly, the law of supply and demand applies just as strongly to employment as it does to anything else, and those who work to subvert it do so at their own peril. In other words, if you raise the price of something (for example, an employee who mops floors at a fast food joint), you get fewer buyers (people who will hire floor moppers).

One objection is this: you're transferring wealth from one person/group to another without receiving any benefit in exchange. Pretty much any time you do that, you lose economic value. Using static analysis (i.e. assuming the business doesn't adapt), the employee gains, but some combination of customers, other employees, or investors lose out. It's a zero-sum situation. At best.

A second major objection is that it removes a couple rungs from the ladder to success. It makes it harder for people with fewer skills and less work experience to get a job. At $15/hour, that floor-mopping job is going to attract not just the teenagers looking for a first job, but also college students, retirees looking for some side income, and other folks who would not have applied if the job paid $7.25/hour. Out of all those applicants, the teenager is probably going to lose out.

Here's a third objection: it creates an even greater incentive for under-the-table jobs. That means lost tax revenue, less safe working conditions, etc.

And one final objection: it removes an incentive to climb the economic ladder. If I can only make $15k/year mopping floors, I'm more likely to invest the time/money to learn a trade that will pay me $35k/year. On the other hand, if I can make $30k/year mopping floors, trade school becomes a lot less enticing.

But does that future come eventually anyway, even without raising the minimum wage? At some point it is simply cheaper to have a couple employees to maintain some computers than to worry about a larger staff. Raising the minimum wage isn't going to prevent that. Hence, something else needs to happen, possibly in addition rising wages.

I think you're on to something there--raising the minimum wage provides a tremendous incentive for companies to automate jobs. Yes, I think that automation is inevitable, but hiking the minimum wage accelerates that transition, rather than allowing it to happen more gradually and naturally. McDonald's isn't the first in the food service industry to do this. I've seen plenty of casual dining places with tablets at each table where customers can review their bill, pick a tip, and swipe their card. Voila, you can now let 30% (or something like that) of your waitstaff go, because they can each wait more tables.

Having tried to live on minimum wage, I am sympathetic to the idea of raising it to a level that would meet people's basic needs. Currently, in the USA, we all have to pay extra in taxes for welfare programs to make up the difference for people on poverty wages, while the Waltons rake in billions in profits. I don't like subsidizing other people's retail businesses that way.

I would support expansion of EITC and other welfare programs to cover the gap between what unskilled labor is worth and the cost of living.

This, I think the minimum wage is a bad alternative.

I wasn't very well acquainted with EITC, so I went off and did some research. It seems like both programs have the same effect from the worker's point of view, but MW puts the burden directly on the employer (and customers, investors, other employees), while EITC puts the burden on taxpayers in general. Why do you feel like EITC is the better of the two?

I think you're on to something there--raising the minimum wage provides a tremendous incentive for companies to automate jobs. Yes, I think that automation is inevitable, but hiking the minimum wage accelerates that transition, rather than allowing it to happen more gradually and naturally. McDonald's isn't the first in the food service industry to do this. I've seen plenty of casual dining places with tablets at each table where customers can review their bill, pick a tip, and swipe their card. Voila, you can now let 30% (or something like that) of your waitstaff go, because they can each wait more tables.

Which is great for a large multinational corporation that can afford to automate.

What about the thousands of smaller businesses whose margins are slim enough that they can't afford a 150% increase in labor expenses? They either cut the hours of their employees, or outright eliminate positions. That's assuming they can even remain in business.

That's exactly what is happening in Seattle. Yeah, McDonald's is rolling out kiosks everywhere this year, but for the smaller players, they're much more limited (at least until kiosks come down in price and can be rolled out to small businesses).

Yeah, LA Times had an article a while back about a study showing that hours and jobs had dropped off since Seattle passed their $15/hour minimum wage.

I'm curious about how many people are actually working in minimum wage jobs, and what the statistical wage distribution in the US looks like. The CBO has a report on the topic, but it only breaks it down to 10th/50th/90th percentile.

One objection is this: you're transferring wealth from one person/group to another without receiving any benefit in exchange. Pretty much any time you do that, you lose economic value. Using static analysis (i.e. assuming the business doesn't adapt), the employee gains, but some combination of customers, other employees, or investors lose out. It's a zero-sum situation. At best.

I don't think that's a completely valid objection because there is a benefit in keeping money/wealth circulating. Putting more money in the hands of people that are going to spend it and less in the hands of those that won't spend it means there's more spending being done on the same amount of money supply. That's more taxes to collect, more services provided, and more goods needed. The people hoarding wealth are not circulating it. The benefit of the transfer is circulation without having to inflate the money supply.

One objection is this: you're transferring wealth from one person/group to another without receiving any benefit in exchange. Pretty much any time you do that, you lose economic value. Using static analysis (i.e. assuming the business doesn't adapt), the employee gains, but some combination of customers, other employees, or investors lose out. It's a zero-sum situation. At best.

I don't think that's a completely valid objection because there is a benefit in keeping money/wealth circulating. Putting more money in the hands of people that are going to spend it and less in the hands of those that won't spend it means there's more spending being done on the same amount of money supply. That's more taxes to collect, more services provided, and more goods needed. The people hoarding wealth are not circulating it. The benefit of the transfer is circulation without having to inflate the money supply.

I've heard that argument made before, but I'm not convinced it holds water, because it assumes that: 1) investors will take the hit, 2) investors won't spend it. Here's why I have trouble agreeing with it:1) if profits are down, investors will sell, and the stock price will drop until P/E (or expected P/E) makes more sense. Also, businesses like to keep their profits high, so they're more likely to cut costs in order to preserve the profits. Automation is probably the most apparent symptom of that.2) even if #1 were true, you've just destroyed an awful lot of wealth, and therefore future spending power, by driving the stock price lower. All those investors now have less wealth that they can spend.

I would support expansion of EITC and other welfare programs to cover the gap between what unskilled labor is worth and the cost of living.

This, I think the minimum wage is a bad alternative.

I wasn't very well acquainted with EITC, so I went off and did some research. It seems like both programs have the same effect from the worker's point of view, but MW puts the burden directly on the employer (and customers, investors, other employees), while EITC puts the burden on taxpayers in general. Why do you feel like EITC is the better of the two?

A few reasons. The general reason is that the minimum wage is a direct market intervention and I don't think direct market interventions are ever the best option when there are other, more direct options to accomplish the same objective. If you want to decrease poverty, the best option is sending money to poor people.

Some more specifics:1. The burden should be on the taxpayers. Businesses do not have an ethical obligation to provide a standard of living. If society decides a minimum standard of living is required, it's up to society to make up the difference (through taxes, generally). 2. The burden should be on taxpayers to make the costs transparent. Politicians prefer to obfuscate costs so no one gets a picture of the real bill. For instance, how much does minimum wage cost you? Kind of tough to tell. Maybe McDonald's would've hired a fry cook at $5/hour, now we're paying $8/hour, but how much of that cost gets passed through, how much is dead-weight loss, how much is coming out of the company pocket, how much more is the employee actually making....all open questions, all obfuscated. EITC, we can quantify that much easier. 3. Minimum wage sets a minimum productivity for any job. Any job that's not worth $X/hour is not going to get done. I expect this to be worse in rural or low-cost areas than, say, NYC or SF.4. Min Wage will distort employment decisions at the bottom of the pyramid beyond just #3. Ex: I was working $10/hour as a data entry guy, which was lot better than min wage at the time. Jacking up the min wage makes other jobs look more attractive to me since the min wage is so much higher. This is actually an intended effect, it drives up all wages at the lower tier. However, you probably don't want college kids crowding out less-skilled adults from part-time retail and food industry jobs.

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Putting more money in the hands of people that are going to spend it and less in the hands of those that won't spend it means there's more spending being done on the same amount of money supply.

One objection is this: you're transferring wealth from one person/group to another without receiving any benefit in exchange. Pretty much any time you do that, you lose economic value. Using static analysis (i.e. assuming the business doesn't adapt), the employee gains, but some combination of customers, other employees, or investors lose out. It's a zero-sum situation. At best.

I don't think that's a completely valid objection because there is a benefit in keeping money/wealth circulating. Putting more money in the hands of people that are going to spend it and less in the hands of those that won't spend it means there's more spending being done on the same amount of money supply. That's more taxes to collect, more services provided, and more goods needed. The people hoarding wealth are not circulating it. The benefit of the transfer is circulation without having to inflate the money supply.

I've heard that argument made before, but I'm not convinced it holds water, because it assumes that: 1) investors will take the hit, 2) investors won't spend it. Here's why I have trouble agreeing with it:1) if profits are down, investors will sell, and the stock price will drop until P/E (or expected P/E) makes more sense. Also, businesses like to keep their profits high, so they're more likely to cut costs in order to preserve the profits. Automation is probably the most apparent symptom of that.2) even if #1 were true, you've just destroyed an awful lot of wealth, and therefore future spending power, by driving the stock price lower. All those investors now have less wealth that they can spend.

On point 1, automation is coming anyway. The question should be whether advancing it's adoption causes more problems than exploiting the time until it arrives. Our huge push to STEM jobs is pretty much just accelerating the coming wave of automation anyway. Maybe we see 4 years of relief for the minimum wage worker rather than 7 years of the status quo. We could then compare the pros and cons. But I don't have a crystal ball.

On point 2, I'm not convinced it would be catastrophic, but I bet it'd make a mess. Still, I think there's a point where investors just have to accept the fact that they're going to take a hit one way or another. Without money moving, there isn't an economy. Without people being paid a livable wage, there is no room for people to buy anything more than bare necessities. Without all this commerce, investors aren't making more money.

We've done an amazing job masking these problems with debt, but that necessarily catches up to people if inflation and wage growth aren't enough to keep them solvent. As the whole mortgage crisis showed, debt can come undone in a hurry. Tons of wealth just disappeared. Then we (as the government) stepped in to stabilize all those bad investments rather than let more wealth just disappear. Probably the right decision in terms of stability, but also probably not in terms of fixing a system where growth can't happen because debt is all the people who are willing to spend can get their hands on, rather than money.

Further, the wealthy investors who hold wealth don't spend it. Look at what all of us here are trying to accomplish, a stable pile of wealth that produces returns we can live on without touching the principal. Maybe 30, 40, 50 years down the line we'll pass it off to people or institutions that will spend it once we're dead. But we're not going to touch it. Those wealthier than us are doing the same and then some. There are plenty of multi-millionaires that feel they need another several million before they can stop earning. You don't get rich by spending money.

I'm still not thinking that a minimum wage increase is the best way to perform that transfer, in no small part because it makes an incentive of getting rid of employees in order to keep profits steady. I'd much rather see a UBI implemented and a bunch of reforms to assistance, taxes, and wages implemented in order to pay for it.

I would support expansion of EITC and other welfare programs to cover the gap between what unskilled labor is worth and the cost of living.

This, I think the minimum wage is a bad alternative.

I wasn't very well acquainted with EITC, so I went off and did some research. It seems like both programs have the same effect from the worker's point of view, but MW puts the burden directly on the employer (and customers, investors, other employees), while EITC puts the burden on taxpayers in general. Why do you feel like EITC is the better of the two?

For low productivity workers, working is often the best avenue for picking up new skills and increasing their productivity. Telling workers that can generate $12 an hour in value that they can't work for pay anymore until they figure out how to generate $15 worth of value is cruel. A lot of low productivity workers are the exact type of people who learn much more effectively by doing work than they do in educational settings.

I would support expansion of EITC and other welfare programs to cover the gap between what unskilled labor is worth and the cost of living.

This, I think the minimum wage is a bad alternative.

I wasn't very well acquainted with EITC, so I went off and did some research. It seems like both programs have the same effect from the worker's point of view, but MW puts the burden directly on the employer (and customers, investors, other employees), while EITC puts the burden on taxpayers in general. Why do you feel like EITC is the better of the two?

For low productivity workers, working is often the best avenue for picking up new skills and increasing their productivity. Telling workers that can generate $12 an hour in value that they can't work for pay anymore until they figure out how to generate $15 worth of value is cruel. A lot of low productivity workers are the exact type of people who learn much more effectively by doing work than they do in educational settings.

I think having UBI and also no minimum wage also accomplishes this (i.e. people and jobs would be available for whatever value exists, and someone might do it since their basic needs are already met).

I would support expansion of EITC and other welfare programs to cover the gap between what unskilled labor is worth and the cost of living.

This, I think the minimum wage is a bad alternative.

I wasn't very well acquainted with EITC, so I went off and did some research. It seems like both programs have the same effect from the worker's point of view, but MW puts the burden directly on the employer (and customers, investors, other employees), while EITC puts the burden on taxpayers in general. Why do you feel like EITC is the better of the two?

For low productivity workers, working is often the best avenue for picking up new skills and increasing their productivity. Telling workers that can generate $12 an hour in value that they can't work for pay anymore until they figure out how to generate $15 worth of value is cruel. A lot of low productivity workers are the exact type of people who learn much more effectively by doing work than they do in educational settings.

I think having UBI and also no minimum wage also accomplishes this (i.e. people and jobs would be available for whatever value exists, and someone might do it since their basic needs are already met).

I would support expansion of EITC and other welfare programs to cover the gap between what unskilled labor is worth and the cost of living.

This, I think the minimum wage is a bad alternative.

I wasn't very well acquainted with EITC, so I went off and did some research. It seems like both programs have the same effect from the worker's point of view, but MW puts the burden directly on the employer (and customers, investors, other employees), while EITC puts the burden on taxpayers in general. Why do you feel like EITC is the better of the two?

For low productivity workers, working is often the best avenue for picking up new skills and increasing their productivity. Telling workers that can generate $12 an hour in value that they can't work for pay anymore until they figure out how to generate $15 worth of value is cruel. A lot of low productivity workers are the exact type of people who learn much more effectively by doing work than they do in educational settings.

I think having UBI and also no minimum wage also accomplishes this (i.e. people and jobs would be available for whatever value exists, and someone might do it since their basic needs are already met).

To be clear though, there is a big difference between UBI, which, as the name implies, is "universal" and the EITC or other forms of wage supports, which encourages work.

Instead of just throwing more money at people, we should also talk about making it possible for most of the population to live comfortably on less. For example, modest, affordable housing can be hard to come by in many places. 60 years ago, boarding houses were common and much cheaper than an apartment. Now many places have legislated against these, usually because they put poor people in middle/upper-class neighborhoods. Aldi's doing some good things on the food front, but there's still lots of room to grow. How about stores with ugly/soon-to-expire foods, or downtown auctions of grade B foods from local farmers ? Changing from a car-centered to a people-centered city plan, as MMM has pointed out, would save us all a heap of cash and time. Childcare and healthcare are 2 more huge issues, although Medicaid has done a lot on the latter. Throwing more money at this will help short-term, but will only increase systematic inefficiencies in the long run. (Slightly off topic: For a good read on the history of the EITC, the defacto replacement for cash welfare, and case studies of recipients I highly reccomend "It's Not Like I'm Poor: How Working Families Make Ends Meet in a Post-Welfare World").

It needs to be raised but to nowhere near the $15 range that is commonly pushed. It just isn't possible to raise the minimum to a "living" wage. Whatever it is raised to, hopefully they index it to inflation so the debate doesn't go on and on.

The real issue is that people get stuck in low wage jobs without enough savings buffer to get training to move up. This is a personal and societal issue that needs addressed but paying people significantly more money to work as a cashier at Chipotle isn't the answer.

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But won't we need people to work at Chipotle (or other menial jobs) no matter what? Not everyone can become a tech worker, for economic reasons and the intelligence bell curve.

Instead of just throwing more money at people, we should also talk about making it possible for most of the population to live comfortably on less. For example, modest, affordable housing can be hard to come by in many places. 60 years ago, boarding houses were common and much cheaper than an apartment. Now many places have legislated against these, usually because they put poor people in middle/upper-class neighborhoods. Aldi's doing some good things on the food front, but there's still lots of room to grow. How about stores with ugly/soon-to-expire foods, or downtown auctions of grade B foods from local farmers ? Changing from a car-centered to a people-centered city plan, as MMM has pointed out, would save us all a heap of cash and time. Childcare and healthcare are 2 more huge issues, although Medicaid has done a lot on the latter. Throwing more money at this will help short-term, but will only increase systematic inefficiencies in the long run. (Slightly off topic: For a good read on the history of the EITC, the defacto replacement for cash welfare, and case studies of recipients I highly reccomend "It's Not Like I'm Poor: How Working Families Make Ends Meet in a Post-Welfare World").

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This.

If we changed our expectations on what we need to have to be happy, and we provided the infrastructure to "live smaller", the current MW could easily be a living wage.

Ultimately, I still think we'll need UBI as the majority of low paying jobs will disappear, but even then UBI will only work if we recondition people to consume less. One thing I've been thinking about recently is whether an in-kind form of UBI could work--free housing, clothing, food, and medical care for all.

It needs to be raised but to nowhere near the $15 range that is commonly pushed. It just isn't possible to raise the minimum to a "living" wage. Whatever it is raised to, hopefully they index it to inflation so the debate doesn't go on and on.

The real issue is that people get stuck in low wage jobs without enough savings buffer to get training to move up. This is a personal and societal issue that needs addressed but paying people significantly more money to work as a cashier at Chipotle isn't the answer.

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But won't we need people to work at Chipotle (or other menial jobs) no matter what? Not everyone can become a tech worker, for economic reasons and the intelligence bell curve.

No. Many minimum wage jobs are easily automated. Amazon stores will be mostly employee less and a number of restaurants have replaced waiters with people who just drop off your food after you order on an iPad. A robot can pretty easily vacuum and mop a building if it makes economic sense. Even high paying jobs such as law are susceptible. These result in needing some x% less people, between nearly 100% and a few % reduction.

Minimum wage jobs are already being automated and this will accelerate as the minimum wage increases. Employee price is going up and tech prices are going down.

I would rather see some form of universal basic income or additional free trade/tech training to help lift people out of poverty, rather than pay an artificially high wage to do a menial job.

Yes, some people are not cut out for high tech jobs but there are a lot of menial jobs that are worth more to society but aren't as easy to automate. These are the types of positions that people should be moved into. We've been through this before as most people moved from the farm fields to the cities and it's a rough transition. Paying people more to stay in the field just delays the inevitable and in this case might actually pour fuel on the fire.

If every person whose wage were affected by SKOPOS were to invest the extra earnings, we'd see a one-time lift in asset prices with no accompanying increase in demand for goods and services. P/E multiples would go up. I'm not aware of an empirical study that tests for this, but I have a gut feeling that most of these workers are spending the extra, not investing/saving it.

If every person whose wage were affected by SKOPOS were to invest the extra earnings, we'd see a one-time lift in asset prices with no accompanying increase in demand for goods and services. P/E multiples would go up. I'm not aware of an empirical study that tests for this, but I have a gut feeling that most of these workers are spending the extra, not investing/saving it.

At the same time, though, that inflation of P/E would encourage others to sell, which would increase spending. Of course, a higher minimum wage would drive prices higher, so their buying power wouldn't necessarily be any greater.

I am always amazed at the way Americans express opinions on social matters without bothering to look at the experience of other rich countries. The Australian minimum wage is about A$17 an hour, or about US$13.50 an hour. The Canadian minimum wage is about C$14 an hour, or about US$11. The sky has not fallen in. I accept that forcing wages up should increase unemployment, but the Australian experience is that this is not a serious problem.

I hear that American visitors to Australia complain about the cost of take away food in Australia. The Australian attitude is that if an industry cannot pay its employees properly it should go out of business. In Australia, we are ashamed of working class poverty, even if we cannot do much to solve the problem.

I am always amazed at the way Americans express opinions on social matters without bothering to look at the experience of other rich countries. The Australian minimum wage is about A$17 an hour, or about US$13.50 an hour. The Canadian minimum wage is about C$14 an hour, or about US$11. The sky has not fallen in. I accept that forcing wages up should increase unemployment, but the Australian experience is that this is not a serious problem.

I hear that American visitors to Australia complain about the cost of take away food in Australia. The Australian attitude is that if an industry cannot pay its employees properly it should go out of business. In Australia, we are ashamed of working class poverty, even if we cannot do much to solve the problem.

Automation is emerging, and I fully agree that a UBI is the future.

For people fortunate enough to be unaffected by minimum wage other than seeing higher priced take-out food, yeah it's pretty easy to take in stride. I suspect the people who are not productive enough to merit a job at or above the minimum wage are a little less stoic about the problems that come with being unemployed.

So I would say in addition to looking at the experience of other rich countries, relatively rich people should also consider the negative impacts, and the intensity of those impacts, on people less fortunate than themselves.

I am always amazed at the way Americans express opinions on social matters without bothering to look at the experience of other rich countries. ...The Australian attitude is...

That cuts both ways. It isn't that we can't look around, it's that the American attitude is far, far different than that of the attitude elsewhere. Most people not affected by it don't give a crap about working class poverty here. Even many who are affected are in denial. People are far more interested in their immediate profit than making sure people make a living wage. See the post about how badly hurt the investors would be if a company paid a living wage because it would change the P/E ratios. It's almost certainly true, but which is the bigger problem, that people have problems getting by as things are now or that investors have come to expect profits only possible when this is true and would be hurt if that changed? I'm not asking facetiously; there's not agreement on the answer. Welcome to the US.

The response to rising minimum wages here would be to at the very least investigate how to cut the number of workers making that higher wage, because no American boardroom is going to take declining profits lying down. One of the things that has struck me in my travels around the globe is just how stingy America is about profit. As an American, it's downright weird to me to see people who have the sole job of helping people load luggage onto a bus (not the driver, another person at a given stop), to direct traffic out of an alley and across just one junction of a sidewalk, or to just have people on hand to help out in public facing situations that aren't also constantly stocking shelves. I see them and think two things. First, it's nice but I'm used to doing things like handling my luggage myself. Second, these are the first jobs any American company would cut to trim fat and raise profits.

Finally, it helps to remember that many Americans don't think of themselves as poor, but as the temporarily embarrassed rich. They're so certain that they're going to be rich eventually that they'll vote against their own current interests so they won't be held back once they've taken their rightful spot at the top of the pile. Most other countries seem to have a better grasp on class and that mobility between classes isn't all that easy. While it's a tiny percentage of the population that moves between classes in the US, there are enough rags to riches stories here that people don't think it crazy to think they're going to be rich, and to keep things relevant, that minimum wages don't need to move because it won't affect them.

Finally, it helps to remember that many Americans don't think of themselves as poor, but as the temporarily embarrassed rich. They're so certain that they're going to be rich eventually that they'll vote against their own current interests so they won't be held back once they've taken their rightful spot at the top of the pile. Most other countries seem to have a better grasp on class and that mobility between classes isn't all that easy. While it's a tiny percentage of the population that moves between classes in the US, there are enough rags to riches stories here that people don't think it crazy to think they're going to be rich, and to keep things relevant, that minimum wages don't need to move because it won't affect them.

If your parents are in the bottom two income brackets, your odds of moving up at least one bracket are over 50%. If your parents are in the top two brackets, there's more than a 50% chance you will move down at least one bracket.

This is what the data shows - am I presenting it accurately? Clearly one is going to have better odds if born into a higher bracket. It will always be this way (is this something people want to 'fix'?). The point is that those that are born at the bottom have real opportunities to move up, and if you're born at the top it's not a guarantee that you stay there.

You aren't wrong on the income quintiles obviously, but are those quintiles classes? It's hard to pin down classes in the US, because everybody wants to claim that they're solidly middle class, but I'd argue that income quintiles and classes don't line up all that well. I'm not even sure class and income align, and net worth might be a better indicator. There are certainly high earners that have incredibly low amounts of wealth.

But, let's say income and class go hand in hand for the sake of argument. Quintile boundaries are surprising, at about $17k, $30k, $46k, and $75k for individual earners. One half of all US income is earned by the top quintile of households. Of that, the top 5% of the top quintile take home 40% of the income in that quintile. That's a huge disparity. I wouldn't remotely include all members of that quintile in the same class.

If you count below poverty incomes (about 14th percentile) as lower class and the top 1% (which take 20% of all income, starting at ~$288k in income for an individual) as the upper class, you get about 1 in 12 class upwardly mobile people when applying the income quintile movements proportionally to those populations. You also get a middle class that's about 85% of the population. You can draw different lines for classes and get different results, obviously. I'll grant the ~8.5% my definitions give isn't tiny for upward class mobility, though it's far and away smaller than the 35% the quintile chart would suggest. And most of that is people escaping poverty, not people becoming rich.

On further reflection, that graph is also weird, taking family income and relating it to mobility using apparently individual income. So somebody coming from a family that has one worker and brings in median household income and replicates that setup would appear to move up, because median household income is actually in the 4th quintile when considered as an individual income. Likewise, a household with two people working equally to make median household income that produced somebody who made the same amount as one parent would appear to be downwardly mobile, because half median household income is in the 2nd quintile for individual income. So I'm not really sure what sort of mobility that graph manages to measure, since doing the same thing as your parents could indicate moving up or down.

Australia has twice the minimum wage of the USA, and our economy hasn't collapsed. In fact we have higher workforce participation, a higher median income, and less money spent on social welfare (per capita - US 9.8k, Oz 8.5k). A rising tide floats all boats.

What affects business isn't conditions so much as changing conditions. I mean business goes on even in Damascus and Aleppo and Baghdad and Tripoli where there's a civil war. Business can adapt to all kinds of wages and taxes and regulations and so on, it's when they change quickly that it's an issue, or when they change and then change back again, and so on.

So I would not suggest doubling the minimum wage overnight, obviously that'd destroy jobs. But if you raise it gradually to a decent level you'll find it doesn't do any harm, and in fact does much good.

It works in other countries, and the US is not a unique special snowflake, sorry.

Most of us are not dependent on minimum wage in MMM, but I was curious to see if anyone in the community had any thoughts on the minimum wage increase pros and cons that has been in the news lately. I feel that mustachians tend to feel a social responsibility that factors into our opinions, which I like, but at the same time many of us are not in the demographic where minimum wage positions are our only job prospects, making us potentially out of touch.

The nuance is lost in the rhetoric from both the Left and the Right. Will a higher minimum wage cause mass layoffs? Not necessarily, but it will slow job growth and may result in some job losses. Will it help poor people? In some cases it may. How it all plays out depends on many factors, and the effects will be localized.

In many affluent urban areas the market-clearing price for labor is close to or higher than the proposed increases. In these places very few people will see meaningful pay increases. Will the few that see relatively large increases be better off? Perhaps. However, as an example, in Coastal California it's well established people bid up housing/rent prices such that rents are a function of incomes (http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx). In these areas any increases in income will likely be a case of robbing Peter (business owners) to pay Paul (landlords).

In the end the results are a mixed bag. Not as terrible as some people imagined, though some localized pain. But also not that helpful, though a handful of people may be better off. I believe it's a wash in the end.

The head of the Brotherhood of St Laurence, Tony Nicholson, said the record rates particularly hurt people who don’t go to university and gain qualifications and skills “to navigate the fast-changing modern economy”.

Doesn't matter what the overall employment rate is as the minimum wage doesn't apply to most of the labor market, those who are skilled and semi-skilled.

Germany (where I lived for a year), and most of the EU have stubbornly high youth unemployment. Minimum wage, along with other "workforce protections" do not come without a cost. Not saying they are necessarily bad, but we have to be aware that economies are dynamic systems, if you push or pull on one part it perturbs things in other areas.

What I posted is what I can tell from reading what economists have to say on this topic.

Such a concern is not new. In fact, it's a long and glorious tradition centuries old. The truth of the matter is that automation has to date never resulted in widespread, long-term unemployment.

Automation looks different this time though. Up to this point, we've automated away all the manual labor and people could move on up the scale into jobs creating concepts. The next wave of automation is replacing our creative thought. In order to stay relevant we need to move on to the next thing. However, there doesn't seem to be any further to move... We may have reached the end of the scale finally.

Again, that's all theory. The evidence from practice is that people are overall better off with a higher minimum wage. More employment, higher median income.

What evidence are you talking about?

The evidence of one data point that agrees with his priors. All the evidence you need.

Germany had no minimum wage in 2013. France had a minimum wage of 9.76 per hour. Germany had 5.4 million jobs below the German implemented minimum wage of something in the 8-euro/hour zone....something like 16% of the German work force.

Sweden, Denmark, Norway, Switzerland, Finland all do not have minimum wages. If you want to implement the "Nordic" model, one of the planks is obviously going to be the complete elimination of all minimum wages, even if you want to argue that these nations have labor unions that set minimum wages by industry.

Though, I agree, the US isn't special: minimum wages are also a bad idea for Canada and Australia and the UK as well.

Finally, it helps to remember that many Americans don't think of themselves as poor, but as the temporarily embarrassed rich. They're so certain that they're going to be rich eventually that they'll vote against their own current interests so they won't be held back once they've taken their rightful spot at the top of the pile. Most other countries seem to have a better grasp on class and that mobility between classes isn't all that easy. While it's a tiny percentage of the population that moves between classes in the US, there are enough rags to riches stories here that people don't think it crazy to think they're going to be rich, and to keep things relevant, that minimum wages don't need to move because it won't affect them.

Source: http://www.msnbc.com/msnbc/us-social-mobility-problemArticle is from 2014 and aims to show incomes are not mobile enough. The data shows that more than a tiny percentage (over half in fact) of those who's parents are in the lowest income bracket wind up in a higher income bracket themselves. I'd say that's pretty good.

If your parents are in the bottom two income brackets, your odds of moving up at least one bracket are over 50%. If your parents are in the top two brackets, there's more than a 50% chance you will move down at least one bracket.

This is what the data shows - am I presenting it accurately? Clearly one is going to have better odds if born into a higher bracket. It will always be this way (is this something people want to 'fix'?). The point is that those that are born at the bottom have real opportunities to move up, and if you're born at the top it's not a guarantee that you stay there.

It's also worth pointing out that when people claim other countries, particularly in western europe, enjoy greater mobility, what they really mean is greater relative mobility. So it's not that low income people in other countries have a better chance of increasing their income than those in the U.S., it's that the U.S.'s higher income in general means that our quintiles are "wider" and you have to earn more to move up each quintile.

If you just looked at absolute income mobility, low income people in the U.S. have just as much or more income mobility than any of the western european countries, and if you are the type to assume policies explain everything (I'm not), then the U.S.'s policies look like the proverbial free lunch. Our very poor people enjoy about the same consumption as those in any western european country, once you move away from the very poor, people in the U.S. at any given percentile have more purchasing power than the same percentile in any other country, and there is no negative impact on absolute income mobility.

Most of the press coverage about minimum wage increase has been geared toward fast food workers. But I feel paid caregivers and nurse aides should be first in line for an increase. I used to work as a nurse aide and the job paid only 9.50 - 10 an hour, and the pay is actually going down, not up in this field, even though we have a huge increase in our elderly population and a huge demand for paid caregivers.

Minimum wage should be abolished. It can only remove opportunities, not create them. It can only reduce freedom and choices by outlawing specific activities.

It has zero, none, zilch upside.

Thank you. People who actually understand that and state it plainly are too rare. All a minimum wage does is protect the strong from the weak, so to speak.

One of the biggest problems with discussing economics is that you can't prove the negative, I.e. the alternative that would occur under different conditions.

People can't see all the marginally employable people who can't get a foot on the ladder and all the small businesses that cannot start up.

It is a bizarre idea to me to advocate people ignore economic reality as public policy. If you don't produce $10 an hour of economic value, why should anyone pay you $15? Please note there is a complete separation between being a great human being and being a well compensated human being.

I am glad however so many people are brainstorming other ideas, it shows more people at least understand it's not as simple as implementing a price control on wages.

There are a lot of people who will never get out of minimum wage or low paying jobs. It can be b/c of low IQ, disability, poor upbringing, disadvantaged background or maybe they are just plain unmotivated.

My problem with them not making a living wage, is that the way most of these people get by is by government provided services - food stamps, HUD apartments, Medicaid, etc.

Why should I as a tax payer pay that so a corporation doesn't have to pay a living wage? That is an indirect subsidy to the corporation - corporate welfare. Taxpayers are already paying for the highways their goods are shipped on, the police/fire department to come when there is an emergency, etc. and many large corporations then turn around and do off shore tax havens and pay very little taxes themselves at the same time giving the CEO's outrageous salaries.

The overall workforce participation rate is higher in Australia than the US, and this applies for youth, too. We also have a higher median household income than the US - note I said "median", not "average". Going by the household is important, since an 18yo with no job is better off in a household where the parents earn $100k than one where they earn $30k, they have a better day-to-day life and ultimately better prospects long-term.

Youth unemployment is high because they're unskilled, and with free trade, many of our unskilled jobs have gone overseas. We can't compete with Chinese living in dorms and getting $150 a month. Thus, youth unemployment is a problem with the structure of the economy: we don't make things any more. When manufacturing declines, youth employment declines.

The real employment issue in Australia is not so much unemployment (except in regional areas) but security of employment. Most new jobs created are part-time casual, or if full-time are contract work. The person could be binned at any time. This doesn't give people confidence to do things like buy a house or get married. And casual vs permanent is not a function of wage level, but of culture: is it a culture of commitment, or not?

Casual workers actually cost companies more per hour than permanent ones, but they like the freedom to bin the person at any time if things get less busy, or the person annoys them, etc. It's also a way of evading discrimination laws, if you don't want to hire single mothers or something, just hire them then give them few or no hours.

Ultimately the companies committing to at least some of their staff tend to do better than those doing everything part-time casual, but because so many businesses do the casual thing, they survive longer than they deserve to, and there are not enough secure jobs for people.

Australia has many problems, but our high minimum wage isn't among them, and dropping it to US levels wouldn't solve any, indeed it'd create more: I already noted the US has a higher social welfare bill per capita than Australia, as the public purse has to make up for private stinginess. Employed people in Australia don't need welfare.

Mechanization replaced horses a century ago, and horses became unemployable because they cannot be trained to do anything else than pull wagons or plows. Farm workers were laid off a century ago, but farm workers can retrain to work in factories. As factories become automated, can these redundant workers be retrained? Some will, many will not Eventually many workers will be in the same position as horses a century ago where they cannot be retrained.

Suppose all workers could become doctors, lawyers, engineers. How many of these people does the economy need?

Youth unemployment is high because they're unskilled, and with free trade, many of our unskilled jobs have gone overseas. We can't compete with Chinese living in dorms and getting $150 a month. Thus, youth unemployment is a problem with the structure of the economy: we don't make things any more. When manufacturing declines, youth employment declines.

Does a high minimum wage have any effect on the ability of these youth to get their first job where they can start developing skills?

Does a high minimum wage have any effect on where companies can compete doing manufacturing activities?

Australia has many problems, but our high minimum wage isn't among them, and dropping it to US levels wouldn't solve any, indeed it'd create more: I already noted the US has a higher social welfare bill per capita than Australia, as the public purse has to make up for private stinginess. Employed people in Australia don't need welfare.

If you doubled the minimum wage again, employed people would have even better outcomes. It's the unemployed people who are harmed by high minimum wages, not the employed people.

Why should I as a tax payer pay that so a corporation doesn't have to pay a living wage? That is an indirect subsidy to the corporation - corporate welfare. Taxpayers are already paying for the highways their goods are shipped on, the police/fire department to come when there is an emergency, etc. and many large corporations then turn around and do off shore tax havens and pay very little taxes themselves at the same time giving the CEO's outrageous salaries.

It's worth noting that all costs imposed on companies are passed on to the consumer or investor. That's you and me. You will pay for that higher minimum wage whether you want to or not. Either you'll have to accept lower returns as an investor, or higher prices as a consumer.

Quote

A person who works full time should make a living wage.

This, unfortunately, flies in the face of the laws of economics. What you're arguing here is that a person with zero skills (who you would hire at minimum wage) should be paid just as much as, say, the guy who's been swinging the hammer or flipping the burgers for several years and is now a manager (at, say, $15).

I think we can all agree that it would be desirable that everyone who works will earn a living wage, but the work that some people do simply does not bring enough value into the economy to justify higher wages. When you increase the cost of a good or service, you'll see less demand. Raise the cost of a fast food worker, and you'll get fewer people hiring fast food workers.

There are a lot of people who will never get out of minimum wage or low paying jobs. It can be b/c of low IQ, disability, poor upbringing, disadvantaged background or maybe they are just plain unmotivated.

My problem with them not making a living wage, is that the way most of these people get by is by government provided services - food stamps, HUD apartments, Medicaid, etc.

Why should I as a tax payer pay that so a corporation doesn't have to pay a living wage? That is an indirect subsidy to the corporation - corporate welfare. Taxpayers are already paying for the highways their goods are shipped on, the police/fire department to come when there is an emergency, etc. and many large corporations then turn around and do off shore tax havens and pay very little taxes themselves at the same time giving the CEO's outrageous salaries.

A person who works full time should make a living wage.

So a person of low IQ that can't be productive enough to earn a "living wage" should be legally barred from working?

A person's worth as a human being is not tied to their economic productivity, and just because a person is less productive than you think they should be, that doesn't mean they shouldn't be allowed to work and earn what they can, even if they need additional help on top of what they can earn.

There are a lot of people who will never get out of minimum wage or low paying jobs. It can be b/c of low IQ, disability, poor upbringing, disadvantaged background or maybe they are just plain unmotivated.

My problem with them not making a living wage, is that the way most of these people get by is by government provided services - food stamps, HUD apartments, Medicaid, etc.

Why should I as a tax payer pay that so a corporation doesn't have to pay a living wage? That is an indirect subsidy to the corporation - corporate welfare. Taxpayers are already paying for the highways their goods are shipped on, the police/fire department to come when there is an emergency, etc. and many large corporations then turn around and do off shore tax havens and pay very little taxes themselves at the same time giving the CEO's outrageous salaries.

A person who works full time should make a living wage.

So a person of low IQ that can't be productive enough to earn a "living wage" should be legally barred from working?

A person's worth as a human being is not tied to their economic productivity, and just because a person is less productive than you think they should be, that doesn't mean they shouldn't be allowed to work and earn what they can, even if they need additional help on top of what they can earn.

No, I am arguing the opposite. Our definition of "productive enough to earn a living wage" should change. Just like most western countries that have living wages as minimum wages.

A person with a low IQ who works at Burger King their entire life should make enough money to support themselves without taxpayer supports. There are people who cannot get advanced job training, go to college, or make their way up an economic ladder, but can live independently and do honest work for what should be a livable wage.

That may mean *gasp* corporations don't pay CEO's $10,000 per hour or *gasp again* there is less profits in a company.

Since companies won't raise wages on their own, that would have to be done with government regulation - i.e. a higher minimum wage. Since the vast majority of all western countries have done this without economic collapse, it is possible here.

btw, as a full time caregiver who works her ass off in very difficult conditions and gets paid exactly $0 to do it, I am very familiar with the idea person's worth is not tied to economic productivity. Otherwise, I would be considered worthless.

No, I am arguing the opposite. Our definition of "productive enough to earn a living wage" should change. Just like most western countries that have living wages as minimum wages.

A person with a low IQ who works at Burger King their entire life should make enough money to support themselves without taxpayer supports. There are people who cannot get advanced job training, go to college, or make their way up an economic ladder, but can live independently and do honest work for what should be a livable wage.

That may mean *gasp* corporations don't pay CEO's $10,000 per hour or *gasp again* there is less profits in a company.

Since companies won't raise wages on their own, that would have to be done with government regulation - i.e. a higher minimum wage. Since the vast majority of all western countries have done this without economic collapse, it is possible here.

btw, as a full time caregiver who works her ass off in very difficult conditions and gets paid exactly $0 to do it, I am very familiar with the idea person's worth is not tied to economic productivity. Otherwise, I would be considered worthless.

How many countries have minimum wage, and of those how many have approximately doubled it over a short period? Also, I would much prefer we do what's healthy for the economy rather than aiming for avoidance of economic collapse.

As has already been stated on this thread, the push to increase minimum wage is supposedly for the benefit of low wage workers, so the question of how it impacts the overall economy is of secondary concern.

So other than cutting CEO pay or making less profit the company could also cut hours, increases automation, replace low skill workers with higher skilled workers, relocate...or any number of other options/combinations that end up hurting low wage workers in the end. This is what Seattle is experiencing in their push to $15:

The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city.

On the whole, the study estimates, the average low-wage worker in the city lost $125 a month because of the hike in the minimum.